Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Capital Markets | Capital Expenditure | Drilling Activity | 2020 Guidance

Pioneer Natural Resources Second Quarter 2020 Results

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   |    Tuesday,August 04,2020

Pioneer Natural Resources Co. reported its Q2 2020 results.

Pioneer reported a second quarter net loss attributable to common stockholders of $439 million, or $2.66 per diluted share. These results include the effects of noncash mark-to-market adjustments and certain other unusual items. Excluding these items, the non-GAAP adjusted loss for the second quarter was $54 million, or $0.32 per diluted share. Cash flow from operating activities for the second quarter was $328 million.

Highlights

• Delivered strong second quarter free cash flow¹ of $165 million

• Averaged second quarter oil production of 215 thousand barrels of oil per day (MBOPD)

• Averaged second quarter production of 375 thousand barrels of oil equivalent per day (MBOEPD)

• Reported capital expenditures² of $235 million during the second quarter, underspending revised capital budget

• Reduced second quarter lease operating expense (LOE) per barrel oil equivalent (BOE) by 16% from the first quarter

• Maintained 2020 capital expenditure guidance, while increasing 2020 oil production guidance by approximately 2.5%; continuing the trend of improved capital efficiency

President and CEO Scott D. Sheffield stated, "Although the macroeconomic environment presented challenges, Pioneer delivered another excellent quarter, with continued strong operational execution. The Company generated $165 million of free cash flow¹ through significant cost reductions and operational efficiency improvements. The improvements in capital efficiency during the second quarter led to a 2.5% increase in our full-year oil production guidance, while maintaining our previous capital spending range.

"Pioneer is also initiating a long-term investment framework that is underpinned by a cash flow reinvestment rate between 70% to 80%, prioritizing free cash flow generation and return of capital, while maintaining a strong balance sheet. Based on current strip pricing, this framework targets a total return to shareholders of 10% or greater, consisting of a competitive and growing base dividend, a variable dividend and oil growth of five percent plus. I am confident this framework will allow us to return a significant amount of capital to shareholders, while providing the flexibility to manage through commodity price cycles, strengthening Pioneer's investment proposition."

Financial Highlights

Pioneer maintains a strong balance sheet, with unrestricted cash on hand at the end of the second quarter of $180 million and net debt of $2.0 billion. The Company had $1.7 billion of liquidity as of June 30, 2020, comprised of $180 million of unrestricted cash and a $1.5 billion unsecured credit facility (undrawn as of June 30, 2020).

During the second quarter, the Company's drilling, completion and facilities capital expenditures totaled $211 million. The Company's total capital expenditures², including water infrastructure, totaled $235 million.

Cash flow from operating activities during the second quarter was $328 million, leading to free cash flow¹ of $165 million for the quarter.

Financial Results

For the second quarter, the average realized price for oil was $23.16 per barrel. The average realized price for natural gas liquids (NGLs) was $12.65 per barrel, and the average realized price for gas was $1.15 per thousand cubic feet. These prices exclude the effects of derivatives.

Production costs, including taxes, averaged $6.27 per BOE. Depreciation, depletion and amortization (DD&A) expense averaged $12.21 per BOE. Exploration and abandonment costs were $10 million. General and administrative (G&A) expense was $60 million. Interest expense was $33 million. Other expense was $90 million, or $12 million excluding unusual items³.

Operations Update

Pioneer continued to see strong efficiency gains during the second quarter, enabling the Company to place 75 horizontal wells on production. During the first half of 2020, drilling operations averaged approximately 1,125 drilled feet per day and completion operations averaged approximately 1,775 completed feet per day, continuing to surpass original full-year 2020 expectations.

Pioneer's well costs continue to benefit from these efficiency gains and service cost deflation, leading to cost reductions of approximately $1.8 million per well, or approximately 20%, when compared to the Company's original 2020 budget. The trend of reducing well costs continues to significantly improve capital efficiency. Pioneer expects approximately 60% of the achieved well cost savings this year to be sustainable through commodity price cycles.

The Company's production costs also remain a focus and continue to trend lower. Horizontal LOE was $2.17 per BOE during the second quarter, a 13% decrease when compared to the first quarter of 2020 and a 27% decrease from the first quarter of 2019. The improved cost structure continues to drive strong margins and provide incremental cash flow for Pioneer.

The Company continues to proactively curtail lower-margin, higher-cost vertical well production in the current commodity price environment, benefiting operating costs. Pioneer curtailed approximately 7 MBOPD of net production during the second quarter and expects approximately 6 MBOPD to remain curtailed in the current commodity price environment. Decisions to bring curtailed production back online are economically driven and evaluated on a well-by-well basis.

Full-Year 2020 Update

The Company is maintaining its 2020 drilling, completions and facilities capital budget range of $1.3 billion to $1.5 billion, with an additional approximately $100 million budgeted for Pioneer's differentiated water infrastructure, resulting in a total 2020 capital budget² range of $1.4 billion to $1.6 billion.

Pioneer is increasing its guidance for 2020 oil production to a range of 203 to 213 MBOPD and total production range of 356 to 371 MBOEPD. The revised production guidance reflects the current voluntary curtailments that are expected to average approximately 6 MBOPD in the current commodity price environment. The Company continues to monitor the fluid macroeconomic environment and will remain flexible and responsive to changing market conditions to preserve its strong balance sheet.

The Company's previous activity guidance remains unchanged. From April through December 2020, the Company expects to operate an average of five to eight horizontal drilling rigs in the Midland Basin, including one horizontal drilling rig in the southern joint venture area, and operate an average of two to three frac fleets. Pioneer will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed regularly.

Pioneer is redefining its investment proposition to prioritize free cash flow generation and return of capital. This capital allocation framework is intended to create long-term value for shareholders by optimizing the reinvestment of cash flow to a rate of 70% to 80%, which accelerates the Company's free cash flow profile, while continuing to generate strong corporate returns. The Company is targeting a 10% or greater total annual return to shareholders, inclusive of a strong and growing base dividend⁴, a variable dividend⁴ and high-return oil growth. The Company believes this differentiated strategy will position Pioneer to be competitive across sectors.

Pioneer continues to maintain substantial oil derivative coverage in order to protect the balance sheet, providing the Company with operational and financial flexibility throughout this period. The Company's financial and derivative mark-to-market results and open derivatives positions are outlined in the attached schedules.

Third Quarter 2020 Guidance

Third quarter 2020 oil production is forecasted to average between 191 to 201 MBOPD and total production is expected to average between 341 to 356 MBOEPD. Production costs are expected to average $6.25 per BOE to $7.75 per BOE. DD&A expense is expected to average $12.00 per BOE to $14.00 per BOE. Total exploration and abandonment expense is forecasted to be $5 million to $15 million. G&A expense is expected to be $58 million to $68 million. Interest expense is expected to be $31 million to $36 million. Other expense is forecasted to be $20 million to $30 million, excluding stacked drilling rig fees, idle frac fleet fees and other fees associated with reduced activity levels. Accretion of discount on asset retirement obligations is expected to be $2 million to $5 million. The cash flow impact related to purchases and sales of oil and gas, including firm transportation, is expected to be a loss of $20 million to $60 million, based on forward oil price estimates for the quarter. The Company's effective income tax rate is expected to be less than 21%. Current income taxes are expected to be nominal.

Environmental, Social & Governance

Pioneer views sustainability as a multidisciplinary focus that balances economic growth, environmental stewardship and social responsibility. The Company emphasizes developing natural resources in a manner that protects surrounding communities and preserves the environment.

Pioneer is focused on reducing emissions and emission intensities. Between 2016 and 2018, the Company's greenhouse gas (GHG) emissions have been reduced by 24%, total GHG emission intensity has decreased by 38% and methane intensity has declined by 41%. Additionally, between January 2018 and July 2019, the Company was able to limit Permian flaring to less than 2% of its produced gas, one of the lowest flaring percentages in the Permian Basin. The Company's proactive measures, including monitoring 100% of its Permian facilities aerially for leak detection and repair (LDAR) and only producing a well once it is fully connected to a gas line, help to make Pioneer a leader in environmental stewardship.

Socially, Pioneer maintains a proactive safety culture, supports a diverse workforce and inspires teamwork to drive innovation. The Board of Directors has a Health, Safety and Environment Committee and a Nominating and Corporate Governance Committee to provide director-level oversight of these activities. These committees help to promote a culture of continuous improvement in safety and environmental practices.